Ready for its next century

May 01, 2003
-
by Suzi Fraser

Share This:

By Suzi Fraser Dominy

Nisshin Flour Milling Co. Ltd. underwent a major strategic realignment in July 2000 with the creation of Nisshin Seifun Group Inc., a holding company listed on the Tokyo and Osaka stock exchanges. While the obvious objectives were to create more efficient and responsive business units, Shoda said there were more basic reasons behind the restructuring.

"Every organization has a tendency to become more and more complex; somebody needs to take the initiative to simplify the structure from time to time, but you can’t do it every year — so because our 100 year anniversary was a benchmark for us, I decided that this would be a good time to make the necessary changes," he explained. "Of course by doing so, each company has been given the ability to become very focused on its own target market and its own customers."

The administrative functions of the new group have been brought together in a new nine story headquarters building in the Chiyoda-Ku district of Tokyo. It is easy to spot with its large rooftop electronic billboard advertising Nisshin’s food products. "One of our mills in Kobe was badly damaged in the 1995 earthquake," Shoda said. "I wanted to make sure that we did everything possible to protect our new building against future earthquake damage, so we have invested in protective measures for both our new offices and the new Tsurumi G-Mill."

"Before, our headquarters were scattered around in different places. This building brings us together under one roof," Mr. Shoda continued. This is important since it is necessary to have good communication within the group. While each business has a tighter focus, they still share the same corporate goals and policies on such issues as environmental management, social responsibility, industrial safety and quality assurance. And through the holding company, they enjoy the advantages of many group resources, from public relations to centralized R&D and staff training.

All these changes have taken place against a backdrop of continuing economic depression in Japan and a sluggish demand for flour.

"In order to cope with this deflationary trend, we needed to reduce our overheads, and fortunately we succeeded — at least this year," Shoda said. "In the first half of 2001 we achieved a corporate profit of Y7.6 billion (about U.S.$63.1 million). In the comparable period in 2002 we achieved a profit of Y9 billion — a Y1.4 billion consolidated income growth."

This 18% growth in income in the first half has been achieved through a Y0.5 billion growth in volume and by aggressively cutting costs to offset the Y1.4 billion effect of deflation.

"In fact Y2.3 billion in cost reductions were achieved," Shoda explained, breaking this down as: "Y1 billion by rationalizing purchasing activities, Y600 million in reduced personnel costs, Y500 million improved distribution efficiency, Y200 million in product rationalization and Y500 million in other cost-cutting measures." Despite these pressures, a substantial amount was invested in food safety and quality control, areas Shoda considers of paramount importance. Along with the investment in mill construction, Y500 million was added to depreciation for the period.

"In last 12 month period we have seen improved volume growth and expect to see an annual profit of 19.5% to 19.7%, maybe with a little luck, even 20%," he said.

COUNTERING THE ECONOMY

Osamu Shoda does not foresee a quick turnaround in the economy. In addition to streamlining operations and con trolling expenditure, efforts have been concentrated on the development of areas he predicts will have increased demand, such as healthy foods and convenience products. In flour milling, this means the introduction of new lines, such as whole wheat flours.

"At Nisshin Pharma, we are moving away from the supply of bulk chemicals, such as vitamins, and towards nutritional and health supplements," he said. Examples of products are a chicken soup that contains wheat albumin to slow carbohydrate absorption and regulate blood sugar levels, a psyllium fiber product, vitamin and mineral supplements and a Coenzyme Q10 product. In the Processed Food Division, this translates into complete and ready-to-eat frozen, chilled and ambient temperature meals.

"We have also extended this approach to Nisshin Feeds, where we have an herbal pig feed that reduces or replaces the use of artificial additives to manage healthy stock, while at the same time improving meat quality. We also have a layer feed to produce vitamin D enhanced eggs," he added. For pet foods, Nisshin has developed a whole line of nutra-ceutical foods for different life stages and health needs of cats and dogs.

Customer relationships are the cornerstone of Nisshin’s business philosophy, so it is not surprising that the So Shoku Club — an interactive, web-based information resource for customers — has become a force for strengthening ties and helping the company keep a close eye on its customers’ needs and market trends.

GLOBAL VISION

Shoda recognizes the trend towards globalization and believes it will have a major effect on the Japanese market. Extending the international reach of Nisshin Flour Milling is very much a part of his medium and long-range planning strategy. Nisshin is already well established in Asia Pacific, with Nisshin-STC Flour Milling Co., Ltd. in Thailand and the Four Leaves PTE. Ltd. bakery in Singapore.

In 1989 Nisshin bought the flour milling business Rogers Food Ltd. in Canada. The plant currently supplies 85% of its output to the domestic market but has a strong and growing export business to Asia Pacific.

Since World Grain last visited the company in 1997 (See the January 1998 issue, or use the E-Archive #19223 in www.World-Grain.com’s Article Archives), Nisshin has strengthened its presence in North America with the establishment of the Medallion Foods pasta manufacturing plant in Tacoma, Washington, U.S. and has recently announced plans to expand the Rogers Foods business with a new 250-tonnes-per-day flour mill at Chilliwack, B.C., Canada, some 60 miles east of Vancouver, B.C. and 200 miles west of the existing 220-tonnes-per-day Armstrong mill. Construction is due to be completed in 2004.

Shoda is confident that the expansion is a sound investment for the company: "We were very fortunate to inherit good people when we purchased Rogers Foods," he said. "They know their business and understand their customers." The expansion was prompted by a growing customer base and increasing market opportunities. "We expect to see a rapid return on our investment," Shoda said.

Last year Nisshin gained its first foothold in China with Qingdao Nisshin Seifun Foods, a breading and batter mix plant, which commenced operation in December 2002. The factory meets the needs of Japanese food companies operating in China, who export back to Japan. Nisshin is the leading supplier of breading and batter mixes in Japan and fully understands the tastes of Japanese consumers. Asked if other Nisshin Group businesses would soon follow, Shoda said: "I am not thinking of a pharmaceutical business in China yet – but there is no reason why we should stop at a coating mix business. One of the reasons I chose this business for a first direct investment in this country was because it afforded us the opportunity to learn about the market in China. By studying this business we can learn about price, quality and a variety of raw materials and food ingredients and that will stand us in good stead for any food related venture we might consider."